It's been five years since the market bottomed following the financial crisis. Joining me to discuss fund performance trends since that date is Shannon Zimmerman, associate director of fund analysis for Morningstar.

Shannon, thank you so much for being here.

Shannon Zimmerman: Good to be with you, Christine.

Benz: Shannon, let's start with the big picture headline. If you had purchased a domestic equity mutual fund on March 9, 2009, how would you have done since that date if you had bought and held and reinvested your dividends and capital-gains distributions?

Zimmerman: Remarkably well, almost irrespective of where you had put your money.

Benz: Throw a dart almost.

Zimmerman: Almost. In fact, in terms of the broad U.S. categories, and the sector categories as well, there was only one that didn't have a nice double-digit return. It was flat to the market. We'll talk about that in a little bit.

It's been a remarkable five-year period. Five years ago, today, as a matter of fact, we were at the start of a rally that is now 5 years old, which is long by historical standards. Nobody knew at the time, of course.

But to your question, even if you were invested in the worst category among the style box-based categories on the U.S. side five years ago, you did remarkably well. Large-cap value, which is at the bottom of the list of the nine style box-based categories, returned 24% annualized over the last five years. So, if you had $10,000 at the beginning of that period, you have around $30,000 now, basically triple your money over that period in the worst-performing category.

Benz: So even if you picked wrong, and were all large-cap value, you still would have done very, very well.

Zimmerman: Even if you picked wrong, you picked right.

Benz: Let's dial into style box performance a little bit more. You say that size--the capitalization size--was the big determinant in performance; style was not as significant.

Zimmerman: Yes. If you look at the data among the diversified categories on the U.S. side, that certainly seems to be the case. There was a persistent bias over this period for small cap over large. Less so, but there's also a pronounced bias in terms of the market's valuation spectrum. If you look at the list of the nine style box-based categories by performance: At the very top, small value, small blend, small growth. Down from there, the next three spots, are all the mid-cap categories, and it's the same order in terms of the valuation sequence: value, blend, growth.

Once you get to the bottom of the performance list, where the large-cap categories all clustered, it's the reverse: Growth beats blend, which beats value. But if you look back at the small- and the mid-cap categories, the margin of victory in terms of valuation spectrum is very, very narrow compared certainly to what you see on the market-cap side.

Benz: How about when you look at sectors, funds that focus on a specific sector or even diversified funds that tend to favor specific sectors? Which sectors were the good spots to be in over the past five years?

Zimmerman: At the very top of the list is consumer cyclical, and that makes sense. The economy is coming back in fits and starts. … We were still in a recession in 2009, but what did well? The most speculative names. People anticipated the end of the economic crisis, and they were trying to invest in the future growth stories, and so the more speculative names were the ones that did best in 2009. Over last five years what you see is consumer cyclicals at the top of the list.

Benz: So that means restaurants, retailers, and those were so beaten down because people were worried about the job losses we were seeing five years ago. What else falls into that category?

Zimmerman: All the stuff that you want but don't really need. Coach would be a good example. It's not just high-end luxury goods, but anything that is not a staple.

Benz: So not my groceries, not my Walgreens, nothing like that.

Zimmerman: You've got to have those. Exactly right.

Consumer cyclicals were at the top of the sector performance list.

Number two, in terms of the sector equity category performance, is in some ways surprising, but in some ways not, if you believe in mean version. It's real estate. One of the causes of the economic crisis that preceded the rally was the implosion of the housing market. Over the last five years, real estate has really come back in terms of the stocks that are in the real estate sector. You can even see some of that in companies that aren't builders necessarily; Home Depot, Lowe's, those kind of companies have down quite well as investors have anticipated a recovery in the housing market that we've seen some of over the last 18 months.

Benz: Even though a lot of REITs don't invest in the housing sector, they're nonetheless pretty tied into this cycle that we've seen, where real estate properties were so beaten down as were the securities during that time.

Zimmerman: Exactly right. It's a valuation play, and irrespective of whether or not they are in the housing market, it's a proxy for investor enthusiasm about this beaten-down asset class.

Benz: One thing we've seen recently is a lot of investor enthusiasm for the health-care sector. How did that fare over the last five years? You mentioned that consumer discretionary as well as REITs did really well, but how about health-care stocks?

Zimmerman: It was in the top five. Health care had a fantastic year last year. It was top of the list in terms of the sectors that we have fund categories based on. But over the last five years, it's either number four or number five among the top-performing sectors. It's a very interesting time period for that sector given Obamacare. There were a lot of fits and starts around that, and investors not understanding, well, is this going to be something that's profitable for the insurers of the world? I think the insurers of the world made peace with that in a way that we'll see how it pans out going forward.

It was a very, I guess you have to say, cataclysmic time for the sector. Cataclysmic in the sense, too, that the big pharma names that in the past might have been driving a lot of the sector's gains, not so much during this period, because the pipeline miracles of the past were not what we saw over the last five years.

Benz: But the biotech sector has been on fire.

Zimmerman: Absolutely, that's true.

Benz: Shannon, you referenced earlier that there is one sector that would have been a lousy place to be over the past five years. What was that one?

Zimmerman: It's the one you always want to avoid--equity precious metals. Over the last five years, every category among the style box-based categories is doing double-digits--all in excess of 20%. All of the equity sector fund categories are also doing quite well--not quite as well in a broad-based way as the diversified categories, but 15% and higher, all the way up to 33% for consumer cyclicals. But not equity precious metals. Over the last five years, it's done 8 annualized basis points so, essentially flat to the market.

Benz: Shannon, when you reflect on the past five years, I think people are now thinking about where to put new money to work. Should they run out and buy that small-cap fund that has outperformed or that biotech fund that has recently outperformed? How should people approach this, given that we are coming off such a strong run for stocks?

Zimmerman: That's a good, important question. Probably the small-cap fund that they want to buy isn't even open at this point. So many of them have closed for just that reason: They've done so well, so persistently, for so long that for small-cap funds in particular, you really start to run the risk of asset bloat, moving the stocks that you're trying to build a position in, in the wrong direction: up when you're trying to build a position, and down when you're trying to exit it. That's not good, and a lot of the best small-cap funds are closed.

Right now, we're in a period--and we have been for a while--where a lot of smart folks think the market is, if not overvalued, certainly fairly valued, and so you have to really cherry-pick your opportunities. To the extent that folks are determined to invest new equity money, I would look to the relatively unloved categories, and those would be the large-cap categories, and maybe consider dollar-cost averaging into large value, which, as I mentioned, is the worst-performing category over the last five years. But even there, it was up 24% annualized over the last five years, so it's hard to imagine that there are a lot of deep discounts, even in that peer group.